Burmese banks

Kyatastrophe

A bank run in Myanmar

WHEN the governor of Myanmar's central bank said there was nothing to worry about, people suspected that something was seriously amiss. Then, a few days later, General Khin Nyunt, the third-ranking member of the country's military junta, declared: “The people are forewarned that if the banks are affected due to the rumours maliciously spread by destructive elements, the country will also have to bear the consequences.” Having deciphered his syntax, depositors rushed to withdraw their money from Myanmar's 20 private banks. The banks, unable to pay them all, limited withdrawals to 1m kyat (officially, $160,000; unofficially, about $1,000) per account per week. More than a month later, the restriction remains and the government is as ham-fisted as ever.

The government has told bankers not to speak to journalists or place advertisements, so no one has much idea of what is going on. Probably, the bank run was sparked by the collapse of several shady investment schemes in early February. But the root cause is the government's 10% cap on interest on deposits. With inflation at 50%, no wonder many Burmese put money into shaky schemes, or indeed anything promising more than the banks.

On paper, Myanmar's private banks (there are a few state-owned ones too) looked solid before the crisis. They held roughly 500 billion kyat in deposits. Their reserve requirement was a steep 20% of that. What's more, they could lend only against collateral, and then only up to 40% of its value, conservatively estimated.

It seemed, then, that the central bank's initial reaction—lending perhaps 30 billion kyat to the banks—was safe enough. Suddenly, it changed its tune, ordering the banks to bring in their own cash by recovering 10% of their loans by March 1st and another 30% by the end of April. Meanwhile, the Burmese are having a hard time getting any money. The sheer shortage of kyat has driven the black-market exchange rate from roughly 1,100 to the dollar to 900 since the crisis began.

Bosses cannot pay their employees, nor tradesmen their suppliers. One foreign businessman complains that his turnover has fallen by 20%. Construction has stopped on several building sites, locals say, for want of cash to pay the labourers. As the banks call in loans, the slump can only deepen.

Why is the central bank now sitting on its hands? One rumour has it that it ran out of paper and ink with which to print money, and so had to stop bailing out the banks. Another theory contends that the junta wants to put the ethnic Chinese businessmen who run most of the banks in their place. Or maybe it knows that the banks were not, in fact, run as tightly as the rules required. One thing is certain: generals make poor bank regulators.